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Europeans send most of their jobs offshore

17 Jan 2005 | (News)

Europe stormed ahead of the US last year in its dash to offshore more business activities, a report revealed yesterday.

The research, from adviser TPI, showed offshoring contracts rose to a record €58bn (£41bn) last year, with Britain accounting for 20% of the total, making it the second biggest offshorer after the US.

Europe as a whole accounted for 49% of the total, overtaking the US for the first time, which stood at 44% of all projects. The Asia Pacific region accounted for 7%. In 2003, the US had a market share of 47%, Europe 41% and the UK 17%.

The €28bn of outsourcing contracts awarded by European firms last year was up from €25bn in 2003 and double the level of 2002, TPI said.

"The equalisation between the European and US outsourcing markets comes through dramatic growth in Europe, not any significant decline in outsourcing in the Americas," said Duncan Aitchison, TPI's managing director of international business.

"European companies realise that they cannot continue to compete effectively on a global scale without utilising the increased efficiency and flexibility they can gain through outsourcing."

The figures did show the US declining in terms of the value of contracts as well as global share. Its €24bn worth of offshoring last year was down from €27bn in 2003 and €31bn in 2002.

Research by the UN estimates that the US and Britain could offshore five million jobs between them during the next decade, provoking vociferous complaints from trades unions.

Last year, for instance, HSBC said it would offshore 4,000 jobs from the UK while National Rail Enquiries and Lloyds TSB's insurance arm announced they would shift nearly a thousand jobs each to India. Insurer Aviva sparked protest when it said 2,350 jobs in its call centres and IT processing sections would go east.

The US and UK tend to be the biggest offshorers because of the global dominance of the English language, although Germany is rapidly increasing its use of offshoring. Its share of the international total leapt to 12.5% last year from just 4% the year before.

Consultancy McKinsey has carried out a study showing every dollar's worth of business offshored from the US or UK creates $1.45-$1.47 of value. Of this, the UK or US derives $1.12-$1.14 while 33 cents worth goes to the recipient country.

That is because the US or British firm doing the offshoring benefits from higher profits which are then ploughed back into new kinds of activity, creating new jobs. Consumers in the host country benefit from lower prices and, in theory at least, from the creation of new, high-value, jobs.

TPI says Europe's use of offshoring will continue this year. "Judging from the pipeline of deals on which TPI is advising, European outsourcing is likely to increase yet again this year," said Mr Aitchison. TPI's research showed 67% of the total last year was in the IT sector and 33% was in business processing, whereby firms engage third parties to perform functions such as finance and accounting, procurement, customer relationship management and human resources administration.

Business processing expanded by 50% as a proportion of major contracts last year, from 22% in 2003. Of all offshoring, the biggest single chunk was in financial services, which accounted for a third of the total.

Western firms are often used to provide advice and technical expertise when setting up centres overseas. The TPI figures found the share of this market going to the "big six" US firms, which include IBM, Hewlett-Packard and EDS, had fallen sharply last year because of the growth in European offshoring.

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